Why Check Point Software Technologies Ltd. Stock Is Worth a Look

By Markets Fool.com

Among data security companies, Check Point may seem least likely to make an investor's watch list. Other mid-tier security providers, including fast-growing Palo Alto Networks , are growing incredibly fast and have caught the attention of investors and analysts alike -- and much of it is positive.

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Check Point, on the other hand, doesn't wow Wall Street with 50% revenue growth each quarter. In fact, measured strictly by sales growth, Check Point appears to be little more than an also-ran. But before mid-cap growth investors scratch it off their list, the reaction to recent news from another of its rivals, Symantec , demonstrates why Check Point fills a void for those seeking growth with less volatility.

Image source: Check Point.

The sky isn't falling for everyone
A common investment theme is that when a company announces less-than-stellar news, most of its rivals are also affected. The assumption being that if one is having a tough go of it, others are also at risk. That's what happened recently when Symantec braced the Street for its impending fiscal 2016 Q4 earnings news scheduled for May 12.

Symantec's earlier revenue, operating margin, and non-GAAP (excluding one-time items) earnings-per-share (EPS) forecast hadn't exactly lit a fire under investors as it was. Now Symantec expects revenue of $873 million, down from a midpoint of $900 million, operating margin of 25% instead of 27%, and EPS of $0.22 from its previous $0.24 to $0.2 range.

According to Symantec, CEO Michael Brown will step down once a successor was found. The result? Borderline panic ensued. But it wasn't just Symantec that took the brunt of investors' uncertainty: Palo Alto, Check Point, and others all paid the price. And that's where Check Point stood out.

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Symantec stock is down 8% since its revised earnings and CEO departure news, and Palo Alto Network shares are down nearly 13% as of May 6. Check Point, on the other hand, is down all of 2%. Why such a dramatic difference? The answer to that is what sets Check Point apart from others of its ilk, particularly for investors in need of growth without the roller-coaster ride.

What's the difference?
For the seventh straight quarter, Palo Alto reported revenue growth over 50% last quarter -- an impressive feat, to be sure. Other mid-cap data security companies in Check Point's universe regularly announce sales growth of 30% and more. Based on its guidance, Palo Alto will finally break its revenue streak this quarter, increasing 45% for the quarter.

Check Point is expected to have another quarter of revenue growth, too, but just in the single digits, which it's done consistently for over a year. However, there is a key difference between Check Point and the Palo Altos of the security world: It's consistently profitable, and that translates to a relative stability its high-flying competitors can't match.

The problem for many in Check Point's space is spending, and a lot of it. As an example, more than half of Palo Alto's $334.7 in revenue last quarter -- $187.6 million -- was spent on sales and marketing. The result was that, including overhead, Palo Alto lost $0.72 a share last quarter, 36% more than last year's $0.53-per-share loss. It's a common theme within Check Point's peer group, though not exactly a ringing endorsement for fundamental investors.

Including expenses, Check Point improved its EPS again last quarter, reporting $0.95 a share, good for a 10% improvement year over year. Founder and CEO Gil Shwed is diligent with Check Point's spending, opting for a slow-but-steady approach to long-term growth, rather than the "sales at all costs" strategy so many others in the sector opt for.

No, Check Point isn't likely to wow the market or investors with gaudy top-line results. But as the recent Symantec-induced sell-off indicates, Check Point's conventional approach to profitable growth translates to a more stable share price than its competitors -- an ideal combination for the more conservative among us.

The article Why Check Point Software Technologies Ltd. Stock Is Worth a Look originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Check Point Software Technologies. The Motley Fool recommends Palo Alto Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.